Comment: You already know that last week was the worst since 2011, and the third worst in history for the indexes during Thanksgiving . The FAANG stocks got slaughtered (along with oil and bitcoin), losing over $1 trillion dollars in value. A month ago, investors were giddy about how much money they had been making, and now they’re anxious, but hopeful. As long as the indexes stay below its 200-day moving average, the bears are in control. That being said, we are near oversold (RSI), so a snapback rally is likely. When that rally occurs (it could be on Monday), wise investors will take the opportunity to reduce positions on losing stocks.

More than likely, and this is important, most rallies may fail to rise above its 200-day moving average. If the indexes are unable to rise above its 200-day MA, that will confirm we remain in a downtrend. Nevertheless, keep in mind that even in a downtrend, there will be these monster rallies (such as the 900-point Dow rally a few weeks ago).

I can’t stress how important it is to learn and read about bear market environments, about shorting, and about the 1929 crash. Many investors are going to ride it out, and more than likely, there will be opportunities to get out with relatively small losses. But if this downtrend continues, and it gets worse, many of the most beloved stocks will reach levels that seem unimaginable at the moment. Last week, the FAANG stocks such as Apple lost a year’s worth of gains. If the downtrend continues, it could get worse.

In life, everything changes and so does the stock market. It is obvious to anyone who is paying attention that the market has changed, and that the “easy days” of the last 10 years are over. It is highly unlikely we will return to those days anytime soon. The sooner you realize that we have entered a new phase, and that increased volatility and whipsaws will be the norm, the better prepared you will be.

This is the time to reduce size if trading or increase cash if investing. They say that no one can time the market perfectly, and that is true, but if I see a speeding locomotive heading towards me, I will get out of the way. The flashing warning signs are everywhere, and although there will be still be rallies along the way, the market has entered a dangerous phase that should not be ignored. Here’s something else to think about: Just as we overshot on the upside, it’s possible we will do the same on the downside (not immediately, but in the future). Keep an open mind for any scenario and most important, be prepared.

Other: Wolf Richter wrote a fascinating piece on the bitcoin crash this weekend. It’s an excellent read: https://bit.ly/2AknCYo

Comment: This week will be shortened because of the Thanksgiving holidays. Be careful about trading on holiday weeks as it’s easy to get chopped up if you’re not careful. The uptrend has been broken and the FAANG stocks, which were on a nonstop ride to the moon, have been damaged. Investors are still not afraid, and in fact, many are buying on the dip.

I’m going to refrain from calling the current market a bear (or bull) market. Instead, I will call this market dangerous and deceptive. One of the most deceptive parts is that you will often get monster rallies that keep investors hopeful and in the game. It’s very possible we’ll have a Thanksgiving-Christmas rally (if we don’t, it means things are worse than anyone realizes). For the bulls to win this week, they will need to bring the indexes above their 200-day moving averages, and stay above. If they are unable to do this, it would be a danger signal.

Even with the likely rally this week, this is a damaged market and caution is advised moving forward.

As I’ve repeatedly suggested, this is the time to learn how to buy put options (shorting is for the pros). Some people will buy inverse ETFs, which must be monitored closely. If betting against the market is not in your comfort zone, increasing cash is suggested for diversification and safety. Last week, shorting the rallies worked very well for the first three days. By Friday, the algos took control again and kept the markets calm.

Bottom line: A holiday rally is possible for Monday and Tuesday (but not guaranteed). Holidays are often tricky to trade, so sometimes the best strategy is to not trade at all (especially from Wednesday to Friday). Have a great Thanksgiving!

S&P 500 one-month trend = Pivot (Mildly Bearish) The uptrend is still broken, at least temporarily, but that could change if the indexes continue to move higher.

S&P 500 is below its 50- and 100-day moving averages= Bearish

RSI: (S&P 500) @51.24= Neutral

Intraday Volatility: Moderate

Comment: I made a big mistake last week and I hope you learn from it. I entered the market with a “bearish view,” because I “thought” the indexes were going to plunge. They fell for the first half hour on Monday morning, and after that the Dow went up by 900 points in three days! My first mistake was having a preconceived opinion. With that opinion, I started to short the rallies, which didn’t work, so I closed the position with losses. I tried it again on Tuesday, and again I was wrong, so I closed the position again with losses. Although my losses were minimal (because I sold my losers quickly), because of my “view,” I missed out on one of the greatest rallies of the year. I won’t be making that mistake again!

If you are a trader, and you find out a trade isn’t working, you never argue with the tape. You get out with losses and reevaluate. If you’re agile, you can switch sides (it’s hard to do because you must admit you were wrong). But not only do you never argue with the tape, but you never hold a losing position for very long, hoping you will be proved right. Only the market is right, even if it’s not fair or doesn’t make sense.

Last week the algos ran the market obscenely higher Monday to Wednesday on nothing but fumes. I “thought” the market would be volatile because of the election and the Fed, but it was hardly volatile at all. The strong rally didn’t make sense, but it happened. By Wednesday, the market had moved into extremely overbought territory, giving nervous investors a ray of hope from a miserable year.

As mentioned, the algos ran the market above it’s 200-day moving averages in a stunning 900-point Dow rally. Unfortunately, the SPX is still below it’s 50-day and 100-day moving averages. For the rally to continue, it will have to rise above its 50-day and 100-day MA, which is now resistance. Based on the RSI and other clues, the market could go in either direction this week.

The rising interest rates should be watched as that could be a problem for the stock market moving forward. The FAANG stocks got creamed on Friday, another negative sign. And oil got massacred, which needs to be watched. Because of the Friday selloff, the market is not as overbought as it was on Wednesday. For the bulls, typically there is a Christmas rally near Thanksgiving and Christmas. There is no guarantee that will occur this year, but traditionally the market does move higher near the end of the year. In addition, any money manager who is behind (a lot are this year) will be panic buying to run up the percentages. Obviously, there will be a lot of conflicting forces as we count down to the end of the year.

Bottom line: Keep an open mind this week, a lesson I forgot to heed. Do not get locked into a “point of view.”

Comment: Last week, the bulls needed to bring the indexes above their 200-day moving averages, and they did, at least for a day. It was quite impressive how the Dow went up by 900 points in three days (Tues., Wed., Thurs.). It was an incredible rally but unfortunately, the indexes were unable to stay above their 200-day moving averages.

All week, there was conflicting news from many sources, including from the White House. As a result, there were wild intraday swings. Volatility is a two-edged sword. On one hand, it can bring great profits if you time the trade correctly and get out quickly. On the other hand, you can lose money if your timing is wrong. It’s not easy to trade in this environment, which is why trading small is recommended.

With the election, the post-election, and the Fed meeting this week, it should be another wild and volatile week. Expect a lot of intraday reversals. Day traders will be pleased, but investors are going to feel a lot of heartburn.

My bearish view: When I put all of the clues together, I am entering this week with a bearish view (i.e. short the rallies). In addition to the election and the Fed, I am also concerned by the Apple news. I believe that investors have been shaken but are still too hopeful and unaware of the risks. The charts of the FAANG stocks are weak, and all I hear from investors is “the FAANG stocks will come back.”

In addition, the indexes went up too abnormally high and too abnormally fast with help from the algos. Even with my bearish short-term view, and this is important, the market is always right. Therefore, if the market rises above its 200-day moving averages (perhaps the Fed will say something positive), and if the trend is up, I will switch sides.

Recession Watch: I was at a mall in Fort Lauderdale, and although the mall was crowded, I found out from several store owners that sales were the “worst in 10 years,” as one owner told me. An owner of a candy store told me if sales don’t improve this Christmas, he won’t renew his lease. These are the type of clues that the great investor Peter Lynch looked for, and it could be an early warning sign of problems ahead. Add in the rising interest rates and stories that housing and auto sales are rolling over and you have the makings of a recession. It’s too early to say for sure but keep your ears and eyes open for clues.

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